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Budgeting & Forecasting › Variance Analysis

What is the total materials variance and how is it split, with a worked example?

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Answer

The total materials variance = standard material cost of actual output - actual material cost, split into price (SP-AP)xAQ and usage (SQ-AQ)xSP. For output needing 1,000 kg at $5 standard but using 1,100 kg costing $4.80: price = (5-4.80)x1,100 = 220 F; usage = (1,000-1,100)x5 = 500 A; total = 280 A.
Price 220 F, Usage 500 A -> Total materials variance 280 A.
Real-world example Cheaper but excessive material gives a favorable price offset by a larger adverse usage.

Common follow-ups: How do the sub-variances net? | Why might they be linked?

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All 38 Variance Analysis questions